Major States Face Rainfall Deficiency; How Will Scarce Monsoon Impact Rice, Oilseeds, Pulses, Sugars?

Many Indian states currently suffer from scarcity in rainfall, especially in rice-producing regions of the country. However, brokerage ICICI Securities expects the deficient rainfall to have a lesser impact on agriculture output, that is because the contributions of crops in the gross value added (GVA) have consistently declined while protein and nutrient-rich foods from 'livestock and fishing' activity have gained momentum significantly. Nevertheless, output in rice, pulses, oil seeds and sugarcane will face the brunt of insufficient monsoon.

Monsoon rain deficiency stood at 9% of LTA as of September 15, 2023. Largely rice-producing states witnessed severe deficiency.

Data from ICICI Securities showed that Indian states with severe deficiency in rains, typically less than or equal to 20% of the normal-average monsoon were --- Manipur (-48%), Kerala (-40%), Jharkhand (-33%), Bihar (-29%), Mizoram (-26%), Assam (-20%), and Karnataka (-19%).

The brokerage pointed out that most of the aforementioned states primarily produce rice as a crop, although Bihar is also a major producer of vegetables, and Karnataka is a major producer of pulses and horticulture.

How will deficient rainfall in these states impact crops as per ICICI Securities:

Rice: The area under rice sowing for most of the above states has risen YoY, except for Jharkhand which could be a risk given the sharp deficiency in rains and high water consumption of rice crop.

Pulses: None of the aforementioned severe rain deficit states are major producers of pulses, except Karnataka. Overall, there has been a dip in pulse sowing across the country.

Oil seeds: The production should be less affected as some of the major producing states either have above-normal rains (Rajasthan and Gujarat) or moderately low rains (Maharashtra and Madhya Pradesh).

Sugarcane: The output may be affected relatively more as it is a high water-consuming crop, and the biggest sugarcane-producing states like Uttar Pradesh and Maharashtra have had moderate rain deficit thus far, while Karnataka has a severe deficit.

Although these crops' production will have some shocks from the deficiency in rainfall, but overall agriculture sector may not be impacted on a broader scale.

As per the data, the contribution of crops to agri GVA has dropped from 63% to 52% over the past decade. On the other hand, the contribution of 'livestock, fishing and forestry' has increased to 48% in agri-GVA.

Not just that, even within the crops, the contribution of horticulture climbed from 24% to 28% over the past decade to become the largest category. Meantime, the contribution of cereals dipped to second rank to the tune of 27%, followed by oil seeds (9%), pulses (6%), and sugar (6%).

Further, the brokerage's data highlighted that top livestock-producing states (milk, meat, eggs etc.) have received relatively better rains, with Rajasthan (+5%), Gujarat (+6%), Andhra Pradesh (-7%) receiving normal rains, while Madhya Pradesh (-10%) and Uttar Pradesh (-14%) receiving moderately low rains so far.

Accordingly, the brokerage's note concluded that "Major horticulture and livestock producing states have not seen any significant rain deficit, although Bihar and Karnataka are concerning. Water reservoir levels remain low at 66% and are a key concern for Rabi crops. However, the jury is still out on rain deficiency as rainfall has picked up in September."

In the first quarter of FY24, the gross value added (GVA) at basic prices came in at 7.8%, as against 11.9% a year ago same period. Further, in Q1FY24, agriculture, forestry and fishing recorded a growth rate of 3.5%, expanding from 2.4% in Q1FY23.

GVA is an economic productivity metric and one of the parameters used for developing the GDP growth of an economy. India's GDP expanded to 7.80% in Q1FY24.